Heat – the new supply shock

NOAA confirmed on 9 July 2026 that El Niño is strengthening, with a 97% chance it lasts into early spring 2027 and an 81% chance it becomes “very strong” in October-December, potentially ranking among the largest events in records going back to 1950.1 El Niño is the warm phase of a natural Pacific climate cycle: warm water builds across the central and eastern equatorial Pacific, trade winds weaken, and the ocean releases more heat into the atmosphere.¹

El Niño does not cause climate change. But it now operates on a hotter baseline. NOAA reported that June 2026 was the second-warmest June in a 177-year record, at 1.09°C above the 20th-century average.² A strong El Niño on top of that becomes a stress test for food, water and power.

Rice is a useful pressure point because it is a staple for more than half the world’s population and highly sensitive to water availability and heat. The World Bank warned that if El Niño persists into 2027, rice output could fall by 20-50% in affected regions, with South Asia, Southern Africa and parts of East Asia most exposed.³

A drought in one major rice region can quickly become a food-price event, a subsidy event and, in some countries, a political event. Relevant solutions include precision irrigation, soil sensors, laser land levelling, variable-rate farm machinery, drought analytics and seed technologies. Agriculture accounts for roughly 70% of global freshwater withdrawals, so producing more with less predictable water is becoming a core productivity challenge.⁴

In a heatwave, every litre of lost water becomes more expensive.

One underappreciated problem is “non-revenue water”: treated water that never reaches a paying customer because of leaks, theft or metering errors. The World Bank has estimated the global cost to utilities at about USD 14 billion per year, and cutting losses in developing countries by half could serve an additional 90 million people.⁵

Droughts lower reservoirs. Heat raises demand. Ageing pipes lose water before it reaches homes, farms or factories. That puts a premium on leak detection, pressure management, smart meters, pumps, valves and analytics that help utilities find losses before shortages become visible.⁵

France shows how climate stress can hit even low-carbon power systems. Nuclear power typically provides around two-thirds to 70% of French electricity, but reactors need cooling water.6 During the current European heatwave, unusually warm rivers and low water levels have forced output reductions and temporary shutdowns.⁷ Le Monde reported in June that heat-related nuclear restrictions affected around 4.6% of France’s nuclear capacity.⁸

Heat creates a double hit: electricity demand rises through cooling, while parts of the power system become less reliable. To address such problems in a world with a growing power demand investments in grid flexibility are needed: batteries, demand-response software, power electronics, transformers, transmission equipment, building efficiency and efficient cooling. The IEA estimates that meeting national energy and climate goals will require adding or replacing 80 million kilometres of power lines by 2040, with annual grid investment needing to roughly double to more than USD 600 billion by 2030.⁹

¹ NOAA Climate Prediction Center, ENSO Diagnostic Discussion, 9 July 2026.
Used for: El Niño status, 97% persistence probability, 81% “very strong” probability, mechanism and Pacific ocean-atmosphere conditions.
² NOAA National Centers for Environmental Information, Global Climate Report: June 2026.
Used for: June 2026 being the second-warmest June in the 177-year record and 1.09°C above average.
³ World Bank, Food Security Update, July 2026.
Used for: El Niño food security risk and potential 20-50% rice output decline in affected regions.
⁴ FAO / UNESCO water withdrawal statistics.
Used for: Agriculture accounting for roughly 70% of global freshwater withdrawals.
⁵ World Bank, The Challenge of Reducing Non-Revenue Water in Developing Countries.
Used for: USD 14bn annual cost of non-revenue water and potential to serve 90m additional people by halving losses in developing countries.
⁶ World Nuclear Association / IEA country data on France.
Used for: France deriving roughly two-thirds to 70% of electricity from nuclear power.
⁷ The Guardian, July 2026 reporting on warm rivers affecting French nuclear power plants.
Used for: warm rivers, low water levels, Golfech shutdown and output restrictions.
⁸ Le Monde, June 2026 reporting on French heatwave and EDF nuclear restrictions.
Used for: heat-related restrictions affecting around 4.6% of French nuclear capacity
⁹ IEA, Electricity Grids and Secure Energy Transitions.
Used for: 80m km of power lines needing addition/replacement by 2040 and annual grid investment needing to double to over USD 600bn by 2030.